Case Study

Literature

Construction activity at 7-month high

4th September 2014

There was more good news for the construction sector in August as output expanded at the fastest rate for seven months.The Markit/Chartered Institute of Purchasing and Supply (CIPS) Purchasing Managers' Index stood at 64.0 in August, up from 62.4 in July and well above the 50.0 no-change threshold.Sharp rises in housing, commercial and civil engineering activity contributed to the second-strongest rate of output expansion since the pre-recession peak in August 2007. The fastest rate was recorded in residential construction, although the pace of its expansion moderated to a three-month low. Strong rises in incoming new work were recorded during August, meaning there has now been a 16-month expansion in new business growth. This was attributed to improving economic conditions and a corresponding rise in clients' willingness to commit to new construction projects. Many companies in the sector boosted headcounts last month, with the pace of growth in new employment down only slightly on the survey-record high experienced in July. The usage of subcontractors picked up sharply, increasing at its fastest pace since the survey began in April 1997. As a result, there was a survey-record decline in subcontractor availability and an improving economic fundamentals and a corresponding rise in clients' willingness to commit to new construction projects. Confidence levels in the sector are high, with more than half (59 per cent) expecting a rise in business activity over the next 12 months and only seven per cent forecasting a decline.However, there were signs of greater strains on supplier capacity in August, with a survey-record rise in delivery times and worsening supplier performance due to low stocks and capacity performance.An increase in average cost burdens was also reported, with input price inflation at its fastest rate since July 2011.David Noble, group chief executive officer at CIPS, said: "The resurgence in construction has entrenched itself after a summer of blistering growth but builders should prepare for growing pains this autumn as the sector labours to recover lost capacity."